What Airbnb reveals about the pros and cons of the sharing economy

In a world with a fast-growing population and diminishing resources, a sharing economy model seems to make a lot of sense. Known by various names, including ‘shareconomy’, ‘collaborative consumption’, ‘collaborative economy’ or ‘peer economy’, the sharing economy is a market model of peer-to-peer exchange, typically facilitated by an online platform. Airbnb and Uber are probably the most well-known and successful companies that have adopted this model, but there are many others, like outsourcing platform Airtasker and peer-to-peer lending platform SocietyOne, whose popularity continues to rise. In fact, according to Canstar, over two-thirds (68%) of Australians now spend and earn money through the sharing economy.

It can be tempting to try to cash in on this burgeoning market by starting your own sharing economy company. But, as with any venture, there are upsides, and downsides.

Today, we’ll look at some of the pros and cons of a sharing economy, using Airbnb as a prime example.

Pros of the sharing economy

Economic benefits

An obvious advantage of the sharing economy is the financial gains made possible by this model. According to a report by Deloitte on the economic effects of Airbnb in Australia, consumers save an average of $88 a night by staying in Airbnb accommodation rather than traditional accommodation in central Sydney, while Airbnb hosts in Queensland earned a median income of $4700 in 2015–16: a “fairly modest supplement to a household’s main sources of income,” admits Deloitte, “but which may nevertheless be handy for living expenses, to pay down debt or to increase savings”.

According to Tourism Research Australia, in the year ending September 2017, 7.9 million international tourists visited Australia, a figure which was up 9% on the previous year’s number. The upward trend is expected to continue. Services like Airbnb can help to cater for this important and growing industry by using space that already exists, but is being underutilised.

This is also great news for the platforms themselves, who don’t need to invest heavily in assets like property and licences, as other traditional accommodations do.

Cons of the sharing economy

Safety concerns

The sharing economy is predicated largely on trust. On Airbnb, you’re trusting that hosts won’t put up misrepresented or fraudulent listings, and that guests will follow the rules laid out by Airbnb and their hosts. And while bidirectional reviews can help to mitigate these risks, they can’t eliminate them altogether. After all, we’ve all heard tales of the Airbnb guests or hosts from hell.

A few months ago, Airbnb came under fire when an investigation by a consumer research site found major flaws in Airbnb’s ability to detect and prevent fraudulent listings, with Airbnb even admitting there were thousands of fake listings on the site. One unfortunate victim was defrauded by two listings in a row, resulting in a loss of £6000. “We recently introduced new security tools to help tackle fake listings and educate our community about staying safe online, including more warnings,” said an Airbnb spokesperson in response.

In order to combat this, as well as the other negative effects listed above, governments are imposing more regulations. New York, for example, has introduced legislation allowing the state to fine Airbnb hosts for listing properties for terms less than 30 days if a permanent resident will not be present, while in Barcelona, a special licence is required for short-term rentals. According to investment bank UBS, these regulations have indeed managed to slow the growth rate of Airbnb listings – though it is important to note the number of listings continues to grow.

Nevertheless, it is expected that many other cities and countries will follow suit. Just last week, it was reported that Airbnb rentals in central Paris will be capped at 120 days a year. Earlier this year, the NSW government proposed a regulation crackdown, releasing a paper outlining options for regulating short-term rentals, including having suppliers acquire a licence and pay levies to cover costs for extra security and shared amenities. “This is about getting the balance right to ensure that neighbours have certain rights and protections, as well as providing for those people that choose to rent out their accommodation for a short period of time,” said Planning and Housing Minister Anthony Roberts.

Sharing the advantages of a sharing economy

At this stage, it’s not about clamping down on the sharing economy, a notion that at this stage is near impossible – the market for such services is projected to grow to $55 billion by 2021, which is nearly a fourfold increase in 5 years. Rather, it’s about ensuring that as many people as possible benefit from the sharing economy, and that the advantages are not skewed towards a small section of the population.

Governments will need to work closely with sharing economy companies to impose sensible regulations that protect all users of the service. Sharing economy companies themselves will also need to work out ways to indemnify users and absorb some of the risks that users are currently taking on, in order to continue to improve their services.

Want the latest information on the current state of the sharing economy? Hear from the big players and the smaller up-and-comers at CeBIT 2018. Register for the event today.